CEC Entertainment Earnings Preview

Investors are on the edge of their collective seat, hoping that CEC Entertainment (NYS: CEC) will top analyst expectations for the third consecutive quarter. The company will unveil its latest earnings Feb. 23. CEC Entertainment and its subsidiaries develop, operate, and franchise family entertainment-restaurant centers under the name "Chuck E. Cheese's" in 48 states and six foreign countries/territories.

What analysts say:

Buy, sell, or hold?: Analysts think investors should stand pat on CEC Entertainment, with three of five analysts rating it hold. Analysts don't like CEC Entertainment as much as competitor DineEquity overall. Four out of seven analysts rate DineEquity a buy compared to two of five for CEC Entertainment. That rating hasn't budged in three months as analysts have remained steady in their opinion of the stock.

Revenue forecasts: On average, analysts predict $178.7 million in revenue this quarter. That would represent a decline of 2.2% from the year-ago quarter.

Wall Street earnings expectations: The average analyst estimate is earnings of $0.14 per share. Estimates range from $0.10 to $0.18.

What our community says:CAPS All-Stars are enthusiastically backing the stock, with 77.8% granting it an "outperform" rating. The greater community agrees with the All-Stars, as 81.1% give it a rating of "outperform." CEC Entertainment has a bullish CAPS rating of four out of five stars that is about on par with the Fool community assessment.

Management:CEC Entertainment's income has fallen year-over-year by an average of 4.7% over the past five quarters. The company's gross margin shrank by 17 percentage points in the last quarter. Revenue fell 3.5% while cost of sales rose 17.8% to $189 million from a year earlier.

Now let's look at how efficient management is at running the business. Traditionally, margins represent the efficiency with which companies capture portions of sales dollars. The company's operating margins have been decreasing year-over-year for the last four quarters. Operating margins reflect the total sales revenue that the company retains after costs. See how CEC Entertainment has been doing for the last four quarters:

Quarter

Q3

Q2

Q1

Q4

Gross Margin

5.5%

18.8%

84.8%

16.8%

Operating Margin

10.3%

7.0%

22.8%

5.1%

Net Margin

5.8%

3.5%

13.3%

1.5%

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